Rs 1 lakh cr worth subsidy goes to the well-off!

February 26, 2016 19:59 IST

Indian state's generosity is not restricted to its poorest citizens.

Prime Minister Narendra Modi berating tax breaks for rich has found a supporter in the Economic Survey, which on Friday estimated that over Rs 1 lakh crore worth subsidies go to the well-off and advocated that they should be cut for better fiscal welfare management.

"Indian state's generosity is not restricted to its poorest citizens. In fact, in many cases, the beneficiaries are disproportionately the well-off," the survey said.

It said the benefits were given to the well-off on small savings schemes and tax or subsidy policies on six commodities -- cooking gas, railways, power, aviation turbine fuel, gold and kerosene.

"We find that together these schemes and policies provide a bounty to the well-off of about Rs 1 lakh crore," the survey said, adding that these incentives benefit not the middle class but also the very top end of the income distribution.

"There are a fair amount of government interventions that help the relatively better off in society. In many cases, this help takes the form of explicit subsidisation, which is surprisingly substantial in magnitude.

"Addressing these interventions and rectifying some egregious anomalies may be good not only from a fiscal and welfare perspective, but also from a political economy welfare perspective, lending credibility to other market-oriented reforms," the survey said.

Modi had last month compared subsidies for the poor with tax breaks for the rich, saying "When a benefit is given to farmers or to the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually called an 'incentive' or 'subvention'. We must ask ourselves whether this difference in language also reflects a difference in our attitude? Why is it that subsidies going to the well-off are portrayed in a positive manner?"

The Economic Survey today said the Rs 1 lakh crore of subsidy going to the better-off merely on account of 6 commodities plus the small savings schemes represent a substantial leakage from the government's kitty, and an opportunity foregone to help the truly deserving.

According to the survey, the subsidy on account of six commodities is Rs 91,350 crore (Rs 913.50 billion). "If we add the subsidies inherent in just PPF schemes, the total subsidy to the well-ff amounts to above Rs 1 lakh crore."